Month: October 2014

Despite the abundance of Internet mortgage resources, more than 6 in 10 Canadians say they still need help when shopping for a mortgage, according to a RateSupermarket.ca poll.

Most folks also value meeting their mortgage advisor in person. The survey found that only 27% didn’t think a face-to-face talk with a mortgage professional was important.

Then again, well over 90% of investors felt it was necessary to meet with a stock broker prior to the 1980s. Now 45.5% of the 10.8 million retail brokerage accounts in Canada are self-directed, as per Investor Economics data. It’s the trend that matters here, not the absolute value.

Other stats from the survey:

25% say they need no help when selecting a mortgage.

13% “didn’t know” if they need help.

56% said they would not go to a bank for mortgage advice.(This stat seems suspect since 72% of mortgagors have contacted a bank rep, according to CAAMP data.)

RateSupermarket.ca polled 453 Canadians via their newsletter and social media, so the survey cannot be deemed representative of the population. But it nonetheless supports the fact that personalized mortgage advice is still essential to the majority.

Twenty-five million dollars for a house sounds like a Vancouver sort of asking price, but with Toronto’s luxury market booming over the past year, more and more homes are appearing in this price range.

There were 21 Toronto homes listed for sale above $10 million on the Multiple Listing Service as of Tuesday, but few of them have a claim to fame as large as 68 The Bridle Path, a $25-million, 28,000-square-foot behemoth in the ritzy Toronto enclave also called The Bridle Path.

Built in the early 1980s by real estate mogul Robert Campeau (developers sometimes like to save the sweetest locations for themselves), the house has hosted people like Pierre Trudeau and Jane Fonda, the National Post reports.

It has appeared in TV shows and movies, including the Mary-Kate and Ashley Olsen vehicle “It Takes Two” and an episode of “Suits,” CTV News reports.

It has 10 bedrooms and 14 full bathrooms, numerous fireplaces, a back yard patio that could host a serious party, and an indoor pool you have to see to believe.

Campeau sold the house in 2002 and the current owners, who wish not to be identified, spent years filling the home with antique items dating back to the 17th century, realtor Barry Cohen says.

Cohen told the National Post the owners’ kids have gone off to school and the couple are empty-nesters who want to “downsize.”

Getting off on the right foot greatly improves the chances of reaching financial goals, be they a comfortable retirement, an ample college fund for the children, or financial independence at an early age.

“If I had looked into the fundamentals [of personal finances]30 years ago … your mother and I would be very well off today,” says David’s 58-year-old father in David Chilton’s book, The Wealthy Barber .

Perhaps the 10 financial pointers below will be of some assistance in helping teenagers and post-secondary students get started on a path that leaves no regrets.

1. In the teens and early 20s, investing in oneself takes precedence. Education, training and work experience build up a person’s “human capital” and lead to a higher stream of income over their life span. “Your job and future career is the most important factor in achieving financial independence and security,” notes Ken Hawkins, vice-president of research at Toronto-based financial advisory firm Weigh House Investor Service (www.weighhouse.com). Adds Jean Lesperance of the Canadian Financial DIY blog ( http://canadianfinancialdiy.blogspot.com): “One of my best financial moves was getting a degree in business that has … helped me get better jobs and earn more over my career.”

2. Borrowing for post-secondary education, training programs, or starting a business is the good kind of debt, for reasons mentioned above. But it can go awry. For writer Craig Baird of Stony Plain, Alta., who wrote The Complete Guide to Investing in Index Funds ), it was one of his worse financial mistakes: “I got a degree … which saddled me with a $40,000 debt I only have now paid off. What made it worse was I never really got a job from that degree, and am in a totally different industry now.” In short, it pays to be frugal and borrow less. Consult guides to economical living such as The Debt Free Graduate book (www.debtfreegrad.com). While in school, “pursue scholarships and bursaries,” recommends Adrian Mastracci, a fee-only portfolio manager at KCM Wealth Management Inc. (www.kcmwealth.com) in Vancouver.

3. How much debt should a student assume? Tim Cestnick, a chartered accountant and author of Winning the Education Savings Game , recommends the Rule of 10s: a graduate needs to land a job paying $10,000 more than their total student loan in order to pay off it off within 10 years (works out to a monthly payment close to 10 per cent of income). Any bigger, and it could be too much of a strain when the time comes for mortgage, kids and other financial commitments. It might also mean a less comfy retirement: $3,000 put into a TFSA at the age of 22 would grow to $95,000 by retirement compared to $44,000 if done 10 years later (assuming an 8-per-cent return, as historically earned by stocks).

4. Many teens with part-time jobs have plenty of disposable income. Lacking financial obligations, it’s easy for them to fall into habit of spending freely on trendy jeans, brand-name shirts, cellphones, and other things. Yet saving is critical to reaching financial goals, so the earlier one gets into the habit, the better. When Preet Banerjee, an Oakville, Ont.-based financial adviser, flipped burgers at McDonald’s as a teenager, his father started him on a pre-authorized contribution plan with a mutual fund. “I put in $50 every two weeks, if I remember correctly,” says Mr. Banerjee, who blogs at WhereDoesAllMyMoneyGo.com (www.wheredoesallmymoneygo.com).

5. Canada’s tax system is horribly complex and many people miss opportunities to preserve or augment their finances because they are not familiar with all the details. Don’t leave money sitting on the tax table: time invested in learning about registered plans, tax credits, and so on can yield major dividends. For example, an 18 year old who files a tax return and opens up a Tax Free Savings Account (TFSA) – even if there is no money to deposit – begins accumulating contribution room every year afterward. By the time they reach 25, they can put aside as much as $35,000 to compound tax free. Other reasons to file tax returns include claiming GST/HST credits and accumulating contribution room in registered retirement savings plans.

Getting a divorce? Here are four things to consider before selling your real estate

By Garry Marr

If splitting is the only option, it doesn’t necessarily mean that you can’t handle the real estate break-up wisely

About 70,000 Canadian marriages end up in divorce every year. It’s an emotional decision that is almost impossible to decouple from the financial implications that follow.

Financial planners often say divorce is one of the worst decisions you can make, at least from a personal finance point of view. We know that, in general, married couples are wealthier than their single counterparts. Running separate households is always going to cost more than running a single one.

But even if splitting is the only option, it doesn’t necessarily mean that you can’t handle the real estate break-up wisely.

Timing can be everything: Waiting a few months could result in thousands of dollars in savings. Fees can be reduced if you can control when you have to sell. And, ultimately, if you’re selling on your own terms – rather than in a rush – you are more likely to yield a better price.

Here are four things to consider before you sell:

1. Try to control the timing. Are you selling during a period when the market is strong with good liquidity, as it often is in the spring or fall? If you need to sell quickly, it could mean leaving plenty of cash on the table. Selling during the busy season means there are more buyers out there and less likelihood you’ll have to sacrifice your sale price.

2. Don’t publicize the fact that you’re selling because of a divorce. Buyers, armed with that information, will lower their price. They might even seek out court documents, all public, showing your financial situation and any court order that says the house must be sold, including a minimum price to be accepted. If one spouse has moved out, you might even want to leave some of his or her clothes in the closet to keep buyers from getting wise.

3. Consider the transaction costs associated with selling. If you just signed a mortgage, you may be looking at tens of thousands of dollars in fees to break the mortgage. Then there are realtor commissions, land transfer taxes, legal fees and movers. Transaction costs can easily eat 8% to 10% of the equity you’re left with after selling your home.

4. Before you make the final decision to sell, take a look at comparable housing. Maybe there’s a way to keep the house. Selling a $1.5-million home could leave each party with $750,000 (assuming the whole thing’s paid off), but even that may only get you a condominium in the same area, a trip to the suburbs, or a whole new life filled with debt. It’s an emotional decision that is almost impossible to decouple from the financial implications that follow.

Moody’s expects it to take before rising income brings Canada’s overextended debt-to-income ratio back to its “equilibrium.” deRitis believes the number could dive from 164% last quarter to below 120.10 years

He added that rate increases will happen “in a very scripted fashion…so I’m not worried about a spike.”(Mind you, the last time U.S. Fed Chief hinted at monetary tightening, Canadian bond yields soared over 100 basis points in four months.)Ben Bernanke

“What’s interesting….is that the Bank of Canada has started talking about how the will be lower,” Hopkins opined. The BoC is intentionally setting expectations that rates will be “lower for longer.”neutral rate

From a housing risk standpoint, 30- to 45-year-olds with little equity and not much upside to their incomes are a primary danger group. These folks, especially if carrying above-average debt loads, are significantly more vulnerable to higher rates.

Moody’s is worried about an oversupply of condos in Toronto, but “less so” in Vancouver and Calgary.

Canada’s new home construction is hovering near 200,000 units a year. That’s “about as high as it’s going to go.”

Moody’s chief economist Mark Zandi also presented at this event. Two tidbits from him:

Canada’s savings rate is now about 3.5-4.0% versus 5.5-6.0% in the U.S.

The Bank of Canada will “follow” the U.S. Federal Reserve, which Zandi predicts will normalize rates “by 2017.” But rates will climb less on this side of the border because, among other reasons, “Canada is more rate sensitive than the U.S.”

As usual, the value in these rate predictions isn’t the predictions themselves (which are worthless over half the time). Their value is the reminder they give us to check our debt service capability in a world of 2%+ higher rates.